Long Term Care Insurance Tax Deductions

The federal government as well as various states provide some tax deductions. The federal government and various state governments have given us a clear message that they are encouraging the purchase of long-term care insurance. The more individuals that have insurance, the less they might rely on the government for assistance. It also ensures that individuals can get the best care should the need arise.

In 1996, congress passed the Health Insurance Portability and Accountability Act (HIPPA). HIPPA provided the following:

Individuals

Long-term care premiums (and other out-of-pocket long-term care costs) can be applied toward meeting the 7.5% threshold for medical expense deductions for those who itemize. (Limits of deductibility based on age are placed on the total premium amount that can be deducted. (See below)

Benefits received from private long-term care insurance are generally not treated as taxable income.

Government Age-Based Table for Long Term Care Premium Tax Deduction (2004)

Attained Age Before Close of The Taxable Year	Eligible Annual Long-Term Care Premiums
40 or Younger	$260
41-50	$490
51-60	$980
61-70	$2,600
70 or Older	$3,250




Self Employed

Long-term care insurance premiums are treated like health insurance premiums for self-employed individuals. Premiums are 100% deductible for the business subject to the eligibility premium limits below. Long-term care insurance benefits paid are tax-free.

Attained Age Before Close of The Taxable Year	Eligible Annual Long-Term Care Premiums
40 or Younger	$260
41-50	$490
51-60	$980
61-70	$2,600
71 or Older	$3,250




Partnerships, S – Corporations, Limited Liability Companies (LLC’s)

Long Term care premiums for partners in a partnership, (more than 2% shareholders) are generally treated like those for the self-employed. (Subject to the limitations for the self employed). Premium payments for less than 2% shareholder and other employees are tax-deductible to the business. They are excluded from the employee’s income, and benefits received are generally tax-free.

C Corporations

Premiums paid for a tax-qualified long-term care policy are 100% deductible for the employees, spouses and their dependents. The corporation can deduct the full premium (not subject to the limitations for the self-employed). The premiums paid are not included in the employee’s income, and benefits received are generally tax-free.

Note: There are no nondiscrimination rules for the deductibility of long-term care premiums. This allows an employer to be selective in who they cover.